Emerging Markets: Are There EMs Worth Picking?

By Johanna Bennett

My colleague Ben Levisohn has written many times in this very blog that emerging markets have been disappointing in 2013 to investors. On Friday, he remarked on a Citigroup note warning that developing markets have become a victim of their own success.

Well others have weighed in on the issue.

Michael Shaoul, chairman and CEO at Marketfield Asset Management, blames EM underperformance on disappointing economic data and earnings reports coming out of these markets in recent months compared to “generally positive readings” out of the U.S. Shaoul writes…

A very rough measure of this is captured by the Citigroup EM Economic Surprise index (a counterpart to the more widely followed Citigroup US Economic Surprise index). This has been mired in negative territory for most of the last 11 months and its 50 day ma has slipped to -13.2 (see chart). Although this in itself is not a deeply negative reading it is the persistence of negative data that has eaten away at local markets. It also suggests that we are not dealing with the sort of sharp collapse and rebound seen in 2008/9, but a more general (and permanent) downshift in economic activity.

Meanwhile, pundits at Barclays Capital have also had their say. On Thursday, Michael Gavin, head of asset management, went so far as to call EM equities “a value trap” during a presentation to reporters that preceded publication of the firm’s quarterly Global Outlook report. But he also suggested that there were spots worth picking.

That sentiment was echoed in Global Outlook report where analyst wrote…

There are EM economies with more favorable outlooks and it would be wrong to dismiss the EM story altogether. Improved policies, better demographics, lower debt, etc. still work in favor of EM economies, keeping their growth rates higher than those in DM. But the EM story has become more nuanced, where country-specific fundamentals and structural developments will matter more, in our view.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.